China-Australia Free Trade Agreement
On 17 November 2014, China and Australia signed a Declaration of Intent regarding the formalisation of the China-Australia Free Trade Agreement (ChAFTA). The signing marked the conclusion of a negotiation period that lasted 21 rounds. Both countries will now prepare the necessary legal documents designed to implement ChAFTA.

The ChAFTA, once in force, will provide mutually beneficial outcomes for participants in both China and Australia's investment management industries.

Cross-border Investment Management Services
China will allow Australian securities brokerage and advisory firms to provide cross-border securities trading accounts, custody, advice and portfolio management services to Chinese Qualified Domestic Institutional Investors (QDIIs), which are Chinese investors that have approval to raise funds in Mainland China, as well as to use those funds to invest outside Mainland China through a quota managed by the State Administration of Foreign Exchange (SAFE).

This change has the potential to enlarge the market for Australian fund managers. There are currently in excess of 30 QDIIs that Australian fund managers may be able to access as a result of this initiative.

Australian Renminbi Quota Under the RQFII Program
China will also grant Australia a renminbi (RMB) quota under the RMB Qualified Foreign Institutional Investor program (RQFII Program), thereby permitting Australian financial institutions to invest offshore RMB in Chinese onshore financial instruments.

As discussed in our recent Legal Insight "Is the RQFII Program En Route to Australia?", this program will allow Australian fund managers to deal directly in the People's Republic of China (PRC) onshore securities market and as a result, give them access to:

• PRC A-shares and fixed-income bonds of PRC entities not currently available offshore
• securities in numerous fast-growing Chinese sectors, such as healthcare, technology, multimedia and consumer sectors, not currently listed outside the PRC
• onshore fixed-income bonds.

For a comprehensive overview and analysis of the RQFII Program, please read our Legal Insight "The RQFII Program – Opportunities and Challenges for International Investors in the Offshore RMB Market" by Choo Lye Tan, partner in our Hong Kong office.

Australian Renminbi Clearing Bank
The People's Bank of China and the Reserve Bank of Australia signed a Memorandum of Understanding facilitating the establishment of an official RMB clearing bank in Sydney. This will provide a direct means of facilitating cross-border RMB transactions between Australian and Chinese entities and will consequently facilitate the efficient operation of the RQFII Program in Australia.

Implementation of ChAFTA
The ChAFTA will enter into force once both China and Australia have completed their domestic treaty-making processes. In Australia, that involves the:

• signing of the ChAFTA, following legal review and translation
• tabling of the ChAFTA in the Australian Parliament for 20 joint sitting days
• review of the ChAFTA by the Joint Standing Committee on Treaties
• introduction of legislation and regulations to make any necessary amendments to existing legislation.

Once these steps have occurred, China and Australia will exchange diplomatic notes to certify that they are ready for ChAFTA to commence and 30 days after this exchange, ChAFTA will enter into force.

What's Next? APEC Asia Region Funds Passport (ARFP)
The participating member economies of the APEC ARFP initiative have been meeting since July to finalise a set of rules for the ARFP, following a public consultation which closed in July this year.

A desirable outcome for the Australian funds management industry will be a set of ARFP rules that will allow Australian funds investing in Chinese onshore financial instruments through the RQFII Program, to be offered to investors in other ARFP economies.